by There is an age old adage that the longest journey starts with just a single step. The same could certainly be applied to saving or investing…but it might start with just a single dollar instead of a step. Whether your financial wellness path is going the direction of saving or investing we have found that the mental aspects of sticking with your financial goal setting and plan are often more important than the plan itself. Find out more about the psychology of saving and investing to see what could be preventing you from reaching your best financial future.
Psychology of Saving
When many people start saving they often think of it as a punishment. It could be that they haven’t done it before (or it could be years since they last saved) and for whatever reason it is nearly like starting a diet after years of being overweight…it just seems like a big task to tackle.
The act of starting to save is generally combined with the following emotions and thoughts:
- Wow, this is slow, I’m not seeing much growth after X months…maybe it’s not working
- Saving for a “Insert big purchase goal” is going to take “forever”
- Is there a better way to do this?
- Why am I even doing this?
When you start to think in the above manner it usually means that you won’t stick with saving too long and that can hurt your overall financial wellness.
To help you continue on your path of saving please keep in mind that the very act of saving is generally characterized by the following:
- Safe – It should be no surprise that “save” and “safe” are so close in spelling. Saving is a safe activity as part of your financial wellness. Saving is generally done in no risk financial products such as a savings account, CD, or money market.
- Slow – Unless you have an incredibly high income (and the discipline to save a huge portion of that) it is going to be slow going. A first goal for anyone, as part of having a sound financial plan is to build up a savings amount (6 months to 12 months of expenses) and that will take some time.
By understanding that the very act of saving is key to your financial wellness and it will be a slow process you can forge ahead when the questions of doubt enter your mind.
Psychology of Investing
Investing is a big leap for many. For those that have mastered the art of consistently saving it is often a struggle to grow even more financially sound through investing. Even the best outlined financial plan won’t be successful if it isn’t executed. For those that are struggle with maintaining their path on investing we have found the following are some of the most common challenges they raise:
- What if I lose it all?
- My mutual funds are negative this month…I knew this wouldn’t work
- How can I beat the market like the infomercials I see on TV?
- I’ll never become a billionaire this way so what is the point?
- Is there any way to speed this up?
Moving from the safety of saving to the perceived risk of investing is one of the biggest stumbling blocks that people face. Those who embrace the fear of losing money will cite examples of the stock market crash (any of them from the great depression to the 1980’s and more) or disasters such as Enron. The fear of losing it all is truly misplaced when you take an investment strategy focused more on Index Funds as they naturally mitigate the risk for you and position you to capitalize on market returns (historically 8% or more). To help your mind manage the fear of losing try to avoid individual stocks (to start) and focus more on Index Funds and Mutual Funds as they will put you in a position for long-term success.
Many of the comments/questions people have around investing are around the aspect of time (one month it’s negative, trying to beat the market, faster/higher returns, etc.) and the reality is that building wealth through a sound investment plan is going to take time. One must embrace the aspect that while the compound effect will work in your favor it is one that takes time (unless you start with a large sum to start 🙂 ). Understanding that success in investing will take time will help you to embrace the ups and downs and avoid taking unnecessary risks with your portfolio.
Whether you are struggling with maintaining your savings plan or investing plan it is essential to understand why you are struggling. Maybe you have asked yourself the same questions we shared here or maybe it is something different but the key part is to understand why you might be struggling to stick with your plan because having financial success requires on-going discipline to reach the financial future you so richly deserve.
